Some Energy, Oil and Gas investments can only legally be sold to a limited section of the investing public. If you suffered losses we may be able to help. All such energy investments can only be sold if such investments are suitable for investors. Contact us at 303-300-5022 or 1-844-253-5858 (toll-free) for a free consultation.
The David Lerner Energy 11 LP, Energy Resource 12 LP, and Spirit of America Fund are such investments and were often sold in a problematic manner. David Lerner Associates recommended unsuitable energy products for most moderate and conservative investors. Astronomical commissions motivated such inappropriate recommendations.
Oil and gas investors do not have to sit and watch their life savings diminish. These investors have rights though many are unaware of the recourse they have for such losses.
Many investors have received high pressure sales of oil and gas investments. Brokers and other investment professionals like to sell these types of investments because they usually pay a very high commission. These commissions can be 10 to 20 times higher than the commission on your average stock sale.
The high commissions will often cause these individuals to ignore the rules in the sale of such investments. The two rules that are usually ignored are those concerning accreditation and suitability.
Oil and gas limited partnerships can generally only be sold to “accredited” investors. Such investors are individuals whose liquid net worth, their net worth excluding their home, is in excess of $1 million.
The second rule that is commonly violated in the sale of such investments is the suitability rule. Oil and gas investments are known by investment professionals to generally be very high risk investments. Investments need to be consistent with the level of risk that an investor is willing or able to take. For example, a person approaching or in retirement or who cannot otherwise afford to take high levels of risk with their investments could not legally be offered an oil and gas investment.
Likewise, an individual who expresses a desire for conservative or moderate investments would not be a suitable investor. There are many other rules that can potentially be violated in the sale of oil and gas investments.
FINRA, which acts under the oversight of the SEC to regulate securities brokers, confirms that oil and gas securities, such as oil and gas exchange traded products, are only suitable for highly sophisticated investors. On May 18, 2020, FINRA released a notice that such exchange traded products cannot be sold to average investors unless the investor has been adequately warned and consented to the high level of risk associated with the investment. This means a broker is liable for an investor’s losses when such investments are inappropriately sold to an average investor.
The greatest losses exist with oil and gas master limited partnerships, or MLPs. The SEC has warned about such investments. This includes not only rules which favor the sponsor of the MLP over the investor, but also includes concentration risk of the venture being entirely invested in a risky industry, and tax risk that comes with limited partnership investing.
As limited partnerships for federal tax purposes, MLPs generally do not pay federal taxes. Instead, investors report on their tax returns their share of the MLP’s income, gains, losses, and deductions, and are taxed at their individual tax rates. Each limited partner receives annually a Schedule K-1 showing its share of the MLP’s income, gains, losses, and deductions. So when debt forgiveness is given the MLP the amount forgiven is treated as income of the investors. The investors are then taxed on such income, which means they could owe, and thus lose, more than the investment is worth.
Such investment losses also exist with leveraged and inverse ETFs tied to the price of oil and gas. These investments, such as Direxion GUSH and DRIP, were intended to be held by for a very short period of time. While the investments were meant to be held for a matter of hours, many brokers negligently held for months.
Problems exist not just with the investment losses, but also with the tax consequence of investing in these companies. This tax consequence is referred to as CODI. A detailed description is found in the following Link to Forbes. In short, these investments are partnerships. When debt is defaulted upon by a partnership, and the lender “writes off” the debt, the write off means that the owners (the investors) are taxed as if they received the amount written off as income. Considering some limited partnerships defaulted on billions in loans, the tax obligation of investors is substantial.
If you have any questions, please feel free to give us a call. These rules apply no matter if you invest in individual oil or gas investments or invest through a mutual fund or master limited partnership (MLP).
Common oil and gas investments we see recoverable losses include Linn Energy (“LINE” or “LNCO”) and more information can be found at www.jpedersonlaw.com/blog/linn-energy-losses/, Williams Companies (“WMB”), Penn West Petroleum (“PWE”), BP Prudhoe Bay Royalty Trust (“BPT”), Breitburn Energy Partners, LP (“BBEP”), Hawthorne, SandRidge Energy, Williams Ridgewood Energy, Apco, Atlas Energy, Midstates Petroleum, Peabody Energy, Resolute Energy, XXI Energy, Nobel, Permian Basin, Pioneer Energy, W&T Offshore, and Breitling Energy. Some of these losses may be recoverable by class action while others may require individual FINRA arbitration suits.
More information on SandRidge can be found at this link.
Jeffrey Pederson is an attorney who works with investors to recover losses in FINRA arbitration and has represented investors in Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut , Florida, Hawaii, Illinois, Indiana, Massachusetts, Montana, New Jersey, New Mexico, New York, North Carolina, Maryland, Minnesota, Missouri, Montana, North Dakota, Rhode Island, Texas, Utah, and Wyoming, in FINRA arbitration actions against securities brokerage firms for unsuitable investments.
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